It seems that gold and the Dow have an agreement regarding the number 10. This number has acted like a "golden ratio" in that things really start to happen before or after the Dow/gold ratio breaches 10, either way.
chart generated on goldprice.org
10 out of 10 for Gold
In Jan 1973 the Dow peaked at 1067, a level it did not managed to surpass until after gold peaked in 1980. In that same year gold bottomed at about the $90 level just after it made a peak close to the $130 level in the same year. Also in 1973 (see chart above) the Dow/gold ratio managed to go below 10 for the first time since it peaked in the middle of the 60's at about a ratio of 27. At the end of 1973 it retested the 10 level and from there zoomed down to bottom at about the 3.2 level the very next year. From that bottom in 1973 gold doubled in a matter of less than 6 months.
In 1976 the Dow/gold ratio was back to just under the 10 level, where in that same year gold bottomed just above $100. The Dow also peaked in 1976 at 1026. From that 1976 peak the Dow/gold ratio fell to where it bottomed just above 1 in 1980. Again, from that bottom in 1976 gold started a phenomenal rally that ended in 1980 with gold above $800.
The moral of the story is that the 10 level for the Dow/gold ratio was a pivot point (in 1973 & 1976) from where the gold price really took off.
10 out of 10 for the Dow
In 1995 the Dow/gold ratio broke the 10 level once again, however, this time going from under to over 10; from where it ran hard until it peaked at about 45. In that same year the Dow broke out of the 4000 level for the first time and starts a rally that doubled the Dow in less than 2.5 years and eventually taking it to above 11,000 in 1999. When you look at a Dow chart you will see that the steepness of the price chart changed significantly from the beginning of 1995. Gold was at the $400 level which was a high since about 1990. From 1995 gold was not able to surpass the $400 level until after the Dow peaked in 1999. In fact gold bottomed significantly lower at under $300 at about the same time that the Dow made its all time high.
The Dow/gold ratio also broke the 10 level in 1953, going up, and ran hard until the peak of 27 in the middle 60's. Since breaching that 10 Dow/gold ratio level in 1953, the Dow ran hard until it peaked in 1966 at 1000, almost 4 times the 1953 level.
The moral of the story is that the 10 level for the Dow/gold ratio was a pivot point (in 1953 & 1995) from where the Dow really took off to new highs.
Who is taking the 10 this time?
At the beginning of 2009 the Dow/gold ratio managed to go below 10 for the first time since it peaked at 45 in 1999. In 2009 it went as low as 7 from where it has gone back to retest the 10 Level in August 2009 and almost again in February 2010 when gold bottomed.
So, it seems that we are again at a point where the Dow/gold ratio has broken through that critical 10 level, from higher to lower than 10, and has retested it in February 2010. This is a situation similar to 1973 as well as to 1976. In fact it is actually similar to 1930 as well, since the Dow/gold ratio also fell through the 10 level after peaking in 1929. The same happened in that it retested (came just short of) the 10 level in 1931 and from there it was off to the races, bottoming at just above 2 in 1932. Gold's price increased significantly more since the 10 Dow/gold ratio was breached in 1931, since general price levels decreased in what was termed deflation (remember gold was money so a decrease in general price levels meant an increase in gold's price).
With the Dow/gold ratio currently at about 9.42, is it going to run off to the 3, 2 and 1 level from here, in similar fashion as it did from 1931, 1973 as well as from 1976? Will the gold price increase in a spectacular manner as it did from 1931, 1973 and 1976? I certainly think that it will. In fact my own fractal analysis suggests that it will. For more on what the above means for the future, as well as analysis of the gold and silver market you are welcome to check my blog or subscribe to my free newsletter (see below).
History Repeats + History Rhymes = Fractals
The above illustrates how history repeats itself, and therefore in some way how cycles are an inescapable part of life. Fractal analysis recognises that history repeats itself in a self-similar manner. That is that the past tend to repeat itself not in an exact manner but in a reliably similar manner.
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